The Federal Election Commission’s professional legal staff believes that Crossroads GPS, an innovative fundraising operation that enabled veteran GOP operatives to end-around campaign finance regulations, likely violated election law, according to a little-noticed legal report quietly released late last Friday.

The report had no effect on the operations of the group, founded by veteran GOP operatives Karl Rove and Ed Gillespie, because members of the Federal Election Commission deadlocked along party lines. But the release of the document reveals that the commission’s professional staff opined that Crossroads was in violation of campaign finance law as far back as 2010 because of its failure to register as a political group.

Crossroads GPS argues that this ad, which ran less than three months before Nevada Sen. Harry Reid was narrowly reelected in 2010, is not political.

The finding is significant because of the stakes involved: In recent years the group, Crossroads GPS, has spent tens of millions on political ads fueled by anonymous donors. Registering as a political group would have forced the nonprofit to begin naming its big-time benefactors. Crossroads has also become a model for hundreds of other committees that during the last election cycle pumped more than $300 million into the campaign — an estimate that is undoubtedly low because of the lack of disclosure required of these organizations. The Internal Revenue Service currently is reviewing the regulations that allow political organizations to establish themselves as nonprofits. The Sunlight Foundation is a member of the Bright Lines Project, which advocates for tighter regulation of such groups.

The report calling for an investigation into Crossroads, written in late 2012 by the Federal Election Commission’s office of general counsel, was effectively shelved in early December when the commissioners deadlocked 3-3 along party lines.

While a parade of recent news reports have catalogued the FEC’s troubles in keeping up with the well-heeled donors it is assigned to police, Crossroads GPS’s saga offers an object lesson in how to win by not-quite-losing. Even though the agency’s staff lawyers characterized one of Crossroads’ legal arguments as something “that could lead to absurd results,” the group doubled down on its dark money fundraising, ultimately drawing “more than $200 million from undisclosed donors during the 2012 election cycle,” according to the Wall Street Journal.

The legal arguments generally hinge on what constitutes an organization’s “primary purpose.” If the primary purpose is electing federal candidates, a group must register as a political action committee. Crossroads already reports certain types of spending to the Federal Election Commission, but becoming a committee would require it to report donors as well.

Republicans, including Crossroads GPS’ lawyer Tom Josefiak, a former general counsel to the Republican National Committee who served as the FEC’s chairman during the 1980s, insist that only the narrowest category of spending (called express advocacy) should be counted towards the political total. And as long as that total is less than 50% of an organization’s budget, their argument goes, the purpose isn’t political.

But ads defined as express advocacy don’t include so-called “issue ads,” which bash candidates before an election but stop short of acknowledging that an election is imminent or from using a short list of “magic words” like “vote for” or “defeat.” Worth noting: Though the FEC doesn’t count them as political ads for reporting purposes, local TV stations do: They report such issue ads as political spending for purposes of reporting to the Federal Communications Commission.

FEC staff lawyers go out of their way to make clear that primary purpose isn’t just about a number. Even organizations that spend less than half their budget on political ads might still be primarily political. But by their accounting, Crossroad’s political spending is at least 53%, even before a formal investigation is begun. Crossroads’ own calculation limits their 2010 political spending to about $15 million, or 39% of their budget.

To get to 53%, FEC lawyers cite previous decisions where issue ads “that do not contain express advocacy but criticize or oppose a clearly identified federal candidate” were used to determine that a group’s primary purpose was political (the examples given included ads from the liberal group MoveOn.org attacking then-President George W. Bush).

The report recommended opening an investigation with the power to subpoena documents and witnesses, but added that there was enough information without additional investigation to initiate settlement talks.

Not only did the FEC’s partisan gridlock undercut the Crossroads proceeding; the timeline of the process also foiled any meaningful action. The original complaint was filed Oct. 12, 2010 by Public Citizen and a number of other left-leaning groups. (A similar complaint by the Missouri Democratic Party was folded in as well). Crossroads GPS filed a response Dec. 22, 2010. It took the general counsel’s office a year–until Nov. 21, 2012–to file its report. And the Commission took another year before voting–which ultimately took place in the first week of December. Though the parties were notified that the Commission had deadlocked 3-3 in December, the legal basis for the decision, including the general counsel’s negative assessment of Crossroads’ position, wasn’t made public until Jan. 10. The FEC’s press office was first alerted that the documents were online at 5:05 p.m., according to a press aide.

It appears that the commission “rigged their disclosures to be after the news deadline on Friday night,” said Craig Holman, a lobbyist for Public Citizen who was a cosigner on the original complaint. While Holman praised FEC staff, he said the commission itself was “dysfunctional.” “The FEC should be much better at handling cases like this in a much more timely fashion — the fact that they take that long on most of their cases is not really a justification for doing so,” he said.

The peculiar way the commission releases final determinations allowed Crossroads to pat themselves on the back before all the documents were in plain sight. On Dec. 17, after the parties were told of the commission’s deadlock, but before the legal reasoning was released, Josefiak, Crossroads GPS’ counsel in the matter, crowed to Politico about the victory. (Josefiak didn’t return a call from Sunlight for comment.) Although he acknowledged that the commission “lacked the votes” to actually decide anything, Josefiak was still willing to read this as a “decision,” apparently telling Politico he was pleased “that the commission decided that GPS is not a political committee, and now we can move on from this politically motivated complaint.”

Holman, the Public Citizen lobbyist, said that process had done little to deter Crossroads. In the years since the complaint was filed, the group “operated in such a way that they believed the FEC was not going to take any action; they gambled and they were right.”

Holman said Public Citizen was considering filing suit against the FEC in District Court, though hadn’t yet decided whether to proceed. “I’ve been a little pessimistic because the courts will generally defer to a regulatory decision; the prospects are not great. However in this particular regulatory agency, the Federal Election Commission, it isn’t as if the agency actually decided ‘no we’re not going to pursue this.’ They deadlocked and the FEC has such a long sordid history of being unable to make decisions that that may make the prospects a little better,” he said.